The Wall Street Journal issued a story that appeared to rely on a single source “a person familiar with the data said” and Bloomberg, apparently unable to corroborate the leak, repeated key bits of the Journal article, with attribution.
Chinese exports fell an additional 2.8% in December versus the prior December, while imports plunged by 21.3%. However, the fall in imports is due to a significant degree to declining commodity prices.
The monthly trade surplus fell to $39.0 billion. but is still within striking distance of the peak month, November, when the surplus reached $40.9 billion.
Imports fell less than expected (consensus was for a 3.8% fall) and the decline in imports greater (expectations of 19.1%).
How markets react may tell us more about the mood of the moment than the fundamentals; the Standard Chartered economist, Stephen Green, that the Journal quoted, gave a mixed reaction. I had expected the decay in trade data to be worse than expectations, but my timeframe was January/February. The December factiods do not support that view, but monthly series are often noisy. A more decisively negative reaction comes from 24/7 Wall Street (hat tip reader Steve):
What was unimaginable a year ago has now happened. China has entered a recession and it may end up being deeper than the one in the US. It is not clear that the government can mount and manage a plan to create what would have to be in the range of ten million new jobs. This will be an even more difficult task if exports continue to fall sharply. China does not have a service industry which is anywhere close to being as large a part of the GDP as it is in the US.
The illusion developed over the last decade that China had become an independent power with a population which could make and consume goods at levels which have never been seen before. During the last two quarters, it has become clear that the the opposite is true. China’s economy may be the most dependent large economy on earth.
If GDP in the US, EU, and Japan contract at 5% this year, China’s economy is very likely to shrink faster. It will be faced with a sharp drop in what it makes and exports. More importantly, large numbers of Chinese are leaving the huge new industrial cities and going back to rural regions where they can at least find work growing their own food. What is more than a trickle now could become a flood. Those who have gone back to non-industrialized sections of the country will not be net consumers at all.
With a short-lived and dwindling middle class, China no longer has the economic core to continue the “miracle”. China has just become another big country in trouble.
One of the somewhat optimistic assumptions about China that I question is “all those newly unemployed factory workers can just go back to where they came from and farm.” Informed reader input would be appreciated here, but let me throw out a contrary line of thought.
China’s most arable land, due to its proximity to the coast, has in many cases been put to other uses. I am under the impression that the hinterlands do not have highly productive soil. Let us assume, however, that these farms were at or only slightly above subsistence before large-scale emigration to the coast started. Now with fewer local mouths to feed and more land to exploit per remaining agricultural worker, it is possible that some (many?) of these local communities were able to sell more product, rather than produce solely for their own survival (after all, someone has to feed all those factory workers, right?). That is, productivity of farm workers would have improved if nothing else because each would in theory have more land on average to work (whether that happened much in practice is a completely different matter). Improved farming practices could also have led to an increase in productivity.
So the idea that millions can return to rural areas without disruption seems naive. You have more mouths to feed from the same amount of land, and no particular reason to think productivity or land under cultivation could change rapidly enough to compensate for such a large influx.